IDB highlights strengths of Central America in the face of external economic challenges

Two new studies on the region examine the current economic landscape and the work that the IDB Group has carried out over the last year.

The economy of Central America and the Dominican Republic has continued to grow over the past year, although at significantly different rates depending on the country. For 2018, growth is estimated at 3.8 percent, a level similar to that of 2017, thanks to a robust economic performance by the region´s main trading partner, the United States.

Central America saw several indicators improve, such as inflation, the current account balance and international reserves. But it has also been confronted with major challenges. One must point out a drop in international prices for major export goods such as sugar and coffee, the onset of a cycle of monetary rises (increases in interest rates?) in the United States, and lower corporate revenues in that country. At the same time, uncertainty remained over a possible escalation in protectionist US trade policy, which could slow the global economy, and tougher immigration policy in the US. Internally in the region, fiscal policy tightened and major weather and socio-political events took place in several countries.

Furthermore, direct financial investment varied from country to country depending on their economic structures.

These are some of the conclusions of a recent macro-economic report by the Inter-American Development Bank, entitled "The Economic Landscape in Central America and the Dominican Republic: External Challenges and Internal Strengths," which seeks to contribute to analysis of the economic challenges facing the region and stir debate on the policies it might undertake to address them more effectively.

With growth in Central America forecast at 4.2% for 2019, the report recommends that policymakers consolidate the macroeconomic stability they have achieved so far, with emphasis on their fiscal position, and boost competitiveness through improvements in their regulatory and institutional systems. Taken together, such steps have proven to be the best guarantee against external risks and would help make the region more competitive and a more attractive lure for investors.

“The countries of the region can take steps to be more resilient in a context of major challenges, both internal and external," said Verónica Zavala, manager of the IDB´s department for the countries of Central America, Haiti, Mexico, Panama and the Dominican Republic. She added that this is “particularly relevant at a time when financial investment is focused especially on countries´ economic fundamentals."

The IDB Group´s Work in Central America and the Dominican Republic

Despite the stronger growth, the region still suffers from rates of poverty and inequality that are among the highest in Latin America and the Caribbean: nearly 20 million people still live in poverty and the income of the richest 10 percent of the population is 10 times greater than that of the poorest 10 percent.

Therefore, the work of the IDB Group in Central America has been quite intense, approving nearly $3 billion in 2018 to develop new projects in Central America and the Dominican Republic. This is reflected in the 2018 Activities Report, which summarizes the work of the IDB Group last year in Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama and the Dominican Republic.

Specifically, 21 new loans for the public sector were approved to the tune of $2.476 and 97 donations were provided for technical assistance, totaling $50 million. Added to this were 15 operations worth a total of $417 million by IDB Invest, the bank´s private sector arm, and $12 million from 12 projects by IDB Lab, the IDB Group´s innovation lab.

About the IDB Group

The IDB Group is the leading source of development finance for Latin America and the Caribbean. It helps to improve lives by providing financial solutions and development know-how to public and private sector clients. The group comprises the IDB, which has worked with governments for 60 years; IDB Invest, which serves the private sector; and IDB Lab, which tests innovative ways to enable more inclusive growth.